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Accountants use suspense accounts to temporarily hold unidentifiable transactions. Payroll suspense doesn't mean your company's payroll is held; paychecks are still issued and your cash account is adjusted to show this cost. When the accountant can't find where part of a payroll transaction needs to go, she'll place it in payroll suspense.

Basic Accounting Transactions

All financial transactions related to your business are recorded in a minimum of two accounts. These transactions effectively zero out each other but allow for financial data to be recorded in all the places it needs to be. To keep it simple, payroll entry of $1,000 for payroll might be coded to the warehouse department for an employee's wages. The other side of that transaction would be recorded as credit entries to multiple accounts such as taxes, health benefit deductions, retirement programs and the net payroll account. If the employee elected a charity donation deducted from his check, but the specific account is not available, that part of the credit allocation would be put into suspense.

Payroll Suspense

Because all accounting transactions have to be in balance in double-entry bookkeeping, a payroll suspense account is used when all or part of a transaction is not identified or there are no accounts available for it. Using the example from the previous section, the accountant allocated the transaction to the right distribution accounts, taxes, benefits and net payable, but didn't have an account set up for the charitable donation of $30, which she allocated to payroll suspense. Once the accountant set up the employee charitable deduction account, she zeroes out the suspense account for that transaction and places the entry in that account.

Accounting Practices

Suspense accounts are used throughout your business chart of accounts for assets, liabilities, income, expenses, owner's equity, gains and losses for unidentified or unallocated items. The suspense account appears with other sub-accounts that are listed underneath these main ledger accounts to contain the detail captured for reporting and analysis. Each account or "bucket" allows your accountant to keep track of specific items, such as total taxes paid for employees. At the end of a business cycle, the accountant closes the books and summarizes the sub-accounts into the main general ledger accounts by making journal entries. This includes setting up new accounts to zero out the suspense accounts.

About the Author

As a native Californian, artist, journalist and published author, Laurie Brenner began writing professionally in 1975. She has written for newspapers, magazines, online publications and sites. Brenner graduated from San Diego's Coleman College.